For Angie’s List and Yelp, IPOs May Bring Conflict

By Jeremy Olshan

Online review sites like Angie’s List and Yelp are built on the idea that for shoppers, customer experiences are more telling than company sales pitches. But will these populist online communities maintain that same credibility as publicly-traded corporations?

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Users of Angie’s List, which has its initial public offering today, and Yelp, which is expected to follow in coming weeks, flock to the sites precisely because “they don’t trust what businesses have to say about themselves,” says Kit Yarrow, a consumer psychologist. Both sites make money by selling ads, although Angie’s List also charges a subscription for the opportunity to read and write reviews of local businesses such as plumbers and mechanics. Yelp also has reviews of restaurants, bars and other local shops.

The ads have at times brought the sites’ reliability into question. A Federal judge recently dismissed a proposed class-action lawsuit against Yelp brought by restaurants claiming they received a wave of negative reviews when they declined to advertise, according to a report in the Wall Street Journal. Yelp and Angie’s List did not return calls seeking comment for this story.

But now some experts say the two sites will be under more pressure to eke out more profits, which could turn some users away. “They feel they own the site and their perception is bound to be impacted by seeing people make tons of money off of it,” says Yarrow. As one Yelp user recently posted on a message board discussing the pending stock sale, “I think the most important question is — when are we all going to get our dividend checks for all the reviews we have written, once the IPO becomes official?”

Once beholden to shareholders, Yelp and Angie’s List may look to earn more from user data, says Darren Hayes, a professor of computer information systems at Pace University. “The IPOs will surely change their business and perhaps compromise the consumer-review process,” he says. “Moreover, consumers will be concerned with how their information will be shared with third parties — like the privacy concerns about Facebook and Google.”

To be sure, some argue that Angie’s List and Yelp may in fact better serve consumers by going public. The process of going through an IPO is as corrective of bad practices as 500 negative reviews on Yelp, says Cliff Smith, a professor at the University of Rochester’s Simon School of Business. “An important role that an underwriter plays in the process is slamming the doors and kicking the tires,” he says. “They will thoroughly scrutinize all of their practices.”

Besides, says Lee Simmons, Dun & Bradstreet’s tech IPO specialist, consumer anger over such changes tends to be short-lived. “Whatever little changes Facebook makes to its platform creates a huge uproar,” he says. “But not a week later that disappears and people get used to it.”

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